According to a report published today by accountancy firm Deloitte, a number of factors will maintain the downward pressure on household incomes in the near-term. For a start, pay growth is unlikely to catch up with inflation. Inflation is heading towards - and possibly above - 5%.
Real earnings are therefore all but certain to fall for the fourth successive year in a row - the first time that this has occurred since the 1870s.
Lastly, the labour market outlook provides further cause for concern, with Deloitte's experts doubting the private sector can compensate for the cuts in public sector employment - which is already falling by 100,000 a year.
Roger Bootle, economic adviser to Deloitte, said: "The upshot is that I expect households' disposable incomes to fall by about 2% this year in real terms - equivalent to about £780 per household. And it will take until 2015 or so for incomes to get back to their 2009 peak.
"In terms of the year-on-year change in circumstances, although not the absolute level, that would make 2011 the worst year for households since 1977 (the depths of the recent recession aside). Were interest rates to rise too, conditions would arguably be the worst for households since 1952."
Some forecasters - such as the Office for Budget Responsibility - are optimistic about the ability of households to run down their saving to support their spending. But the saving rate is historically low and, in the medium-term at least, needs to rise. Consumers may therefore have little choice but to cut their spending and Bootle predicts this spending to drop by 1% this year and by a further 0.5% or so in 2012.
He added: "Of course, not all households will be affected equally. Attention has focused on the "squeezed middle," but pretty much all households face a further squeeze over the next year or two.
"[But] more favourable conditions lie further ahead. I still think that inflation will fall sharply next year and will be below its target by the end of 2012, allowing real incomes to start rising again. And by the end of this Parliament, taxes could be falling rather than rising. But for those households struggling to make ends meet, that may still seem an age away."
Look out for May's issue of HR magazine, due to land on desks today, where, in our financial education supplement 'Talking Finance' we outline the pressures on employee finances and investigate measures to educate them on their money.
